A reader of this column asked me this week about Hikma Pharmaceuticals (HIK), where the shares have slumped from £26.72 at the start of August, slipping below £18 this week despite heavy buying by company directors.
Apparently there have been postings on message boards suggesting that there has been heavy short selling, and also a tale of an individual spread better selling heavily while the spread betting firm has been taking opposing positions.
I do not normally follow Hikma, although it is a FTSE 100 firm with good prospects. I have GlaxoSmithKline (GSK) in my portfolio and do not want another big pharmaceutical company. I don’t read message boards because, although they often have useful information, it is impossible to tell genuine postings from self-serving rumour spreaders. I don’t spread bet because it is gambling, not investing.
However, it is possible to look at Hikma coldly as an investment. A re-read of the most recent results at end of August does suggest to me that the shares may have raced ahead a bit too far before the latest fall.
Although guidance for the full year was reiterated, profits and earnings per share did slip in the first half and the PE rating was quite high, while the yield was OK but not particularly tempting. I think the short sellers have cottoned onto this.
In the shorter term, short sellers may continue to drive the price down for as long as it has momentum in that direction but the time always comes when they close their positions and the coiled spring sends the shares sharply higher – probably too high again before they settle somewhere in the middle.
If you are a short-term trader – but longer than a day trader – it probably is worth buying now or fairly soon. I personally think that short selling is a perfectly legitimate trading tactic despite the attempts of various exchanges to stamp it out.
I'm not one for conspiracy theories. Some people are betting on a further fall, others think the fall has already gone too far. That to me is the normal operation of the markets. If a broker or spread betting firm takes the opposite view to a client, then that is OK as long as the client's wishes are carried out to the letter.
Above all, serious investors should remember that wild swings can present great buying opportunities. I’m still not tempted to buy into Hikma and those who are should read the last results before taking a decision. Good luck if you decide to take the plunge.
Infrastructure Spend Promised: But Not For All
Who do you feel most sorry for, those in Northern England and beyond who desperately need better transport or those on the Heathrow flightpath doomed to more noise and congestion? Transport upgrades – Heathrow, Crossrail, HS2 – always seem to benefit the South East.
We do need a boost to construction; the most disappointing section of an economy that saw third quarter growth of 0.5%. Overall this was better than expected and matched forecasts made when it was assumed we would vote to remain in the European Union.
With Nissan deciding this week to step up car production in Sunderland, at least manufacturing is getting a bit of a boost.
No doubt the flood of Europeans snapping up cheaper goods in UK shops was one reason for the surprisingly strong GDP figure but it is clear that for now at least, the UK economy is managing quite nicely and is doing better than most if not all of Europe. I remain fully invested.
However, the fall in the pound is adding yet another burden to our EU contributions, which are set in euros and will rise even further if the economy continues to grow. If Brexit means Brexit, we need “soon” to mean “the sooner the better”. The uncertainty caused by delay is not helping.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
